Thinking Beyond Borders
Individuals are residents of Egypt for tax purposes if they meet any of the following conditions:
Based on the previously stated conditions, resident employees will be taxed on their total income whether generated in Egypt or outside Egypt so long as Egypt will be their center of their commercial or industrial or professional activities. Additionally, they will be taxed at the normal tax rates as follows:
Non-resident employees will be subject to tax on Egyptian-sourced income at the normal tax rates mentioned above.
Income is considered Egyptian source in the following cases:
It is the employer’s responsibility to withhold and remit the tax to the tax authority on a monthly basis within 15 days following the month of payment.
Income tax is levied at progressive rates on an individual’s taxable income for the year, which is calculated by subtracting allowable deductions from the total assessable income.
There is no threshold/minimum number of days under the domestic tax law that exempts the employee from the requirements to file and pay tax in Egypt. To the extent that the individual qualifies for relief in terms of the dependent personal services article of an applicable double tax treaty, there will be no tax liability. The treaty exemption will not apply if the Egyptian entity is the individual’s economic employer.
A person can be a resident or a nonresident for Egyptian tax purposes. A resident of Egypt is an individual who meets the residency rules set out above. If the residency rules are not met, the employee will not be resident for tax purposes in Egypt and will be taxed according to the declared tax segments which are:
For residents, total income derived from Egypt or outside Egypt if Egypt is their center of commercial, industrial, or professional activities, including allowances as well as all fringe benefits, will be subject to tax in Egypt. While non-residents are subject to tax on Egyptian source income only. Foreign-sourced income that is not related to the employment relationship is not subject to tax in Egypt.
Total compensation, including allowances as well as all fringe benefits, will be subject to tax in Egypt. Foreign-sourced income that is not related to the employment relationship is not subject to tax in Egypt while non-residents are subject to tax on Egyptian source income only. Foreign sourced income that is not related to the employment relationship is not subject to tax in Egypt.
Social Insurance Law 79 of 1975 covers Egyptian employees as well as foreign employees whose countries have treaties with Egypt for reciprocal social insurance treatment.
Employers are required to withhold the employees’ social insurance contributions from their salaries and to remit them together with the employer’s contributions to the Social Insurance Organization on a monthly basis. The salaries and related benefits or emoluments are divided, for social insurance purposes, into a basic salary and variable elements. The maximum insured sum of the basic salary is at present EGP 1,240 per monthuntil July 2017 and starting from July the ceiling will be EGP 1,364. This 10% increase shall be applied on July of each year, and the maximum insured sum of the variable elements is at present EGP 2,430 until December 2017 per monthand starting from January 2018 the ceiling will be EGP 2795 . This 15% increase shall be applied on January of each year. Variable elements include the remainder of the basic salary if it is in excess of EGP 1,240 per month as well as overtime payments, bonuses, representation allowances, and similar emoluments.
Expatriates are not required to pay social insurance. Instead, employers are required to pay 3 percent of the expatriate’s salary to cover work injuries. Expatriates are required to pay social insurance only if required under the terms of a totalization agreement concluded between Egypt and the employee’s home country.
It is the employer’s responsibility to file a quarterly tax return within one month following the end of each quarter. Employees are required to file tax forms only if they have income other than employment income in Egypt or the employer is non-resident for tax purposes or it has no permanent establishment in Egypt.
It is the employer’s responsibility to withhold and remit the tax to the tax authority within 15 days following the month of payment. Employees are required to report their income to the tax authority and remit the tax due on their income only if they are working for a non-resident employer or the employer has no permanent establishment in Egypt.
A visa must be applied for before the individual enters Egypt. The type of visa required will depend on the purpose of the individual’s entry into Egypt. Additionally, employees are required to obtain work permits in order to start working in Egypt per the requirements of the labor law.
Egypt has entered into double taxation treaties with more than 50 countries.
There is the potential that a permanent establishment could be created as a result of extended business travel, but this would be dependent on the level of authority the employee has and other factors which may need to be reviewed on a case by case basis.
VAT is applied at 13 percent until June 2016 and will increase to be 14% starting from July 2016. VAT registration is required.
Egypt has a transfer pricing regime.
Egypt has data privacy laws.
There are exchange control restrictions in Egypt. All transactions should be made through one of the country’s accredited banks.
Nondeductible costs for assignees include contributions by an employer to non-Egyptian pension funds and hypothetical tax. These costs will be deductible by the employer where the tax is borne by the employer.